The Reserve Bank has pulled the trigger on another 0.25 per cent rate hike, pushing the official cash rate to 4.35 per cent — the highest it's been since November 2023. If you're keeping score at home, that's three hikes in this tightening cycle, and markets are already pricing in more. So what tipped the hand this month?

The numbers driving the decision...

ABS data showed headline inflation running at 4.6 per cent in the year to March 2026 — more than double the top of the RBA's 2–3 per cent target band. Underlying measures weren't offering much comfort either. Meanwhile, unemployment held at 4.3 per cent with participation elevated, which is the economic equivalent of the RBA being told: you don't have a demand problem, you have a price problem.

Then the Middle East threw a spanner in the works.

Escalating geopolitical tensions and disrupted oil supply routes added an unwelcome energy price surge to an already complicated picture — one the RBA explicitly acknowledged. The Board's post-decision statement noted that Middle East developments are "having an impact on inflation," with higher fuel prices feeding into goods and services costs more broadly. They flagged second-round effects as a real and present concern.

The vote? Eight to one in favour of hiking. Not exactly a knife-edge.

What the market was thinking going in...

Analysts weren't exactly shocked. VanEck's Cameron McCormack called it "a foregone conclusion," pointing out that inflation was already sticky before geopolitical tensions added oil to the fire — figuratively and literally.

Ebury economist Anthony Malouf was similarly blunt: "The necessity for a hike is clearly underpinned by the interplay between elevated inflation and a persistently resilient labour market." With trimmed mean at 3.3 per cent and jobs growth still humming along on the back of full-time employment, the RBA didn't have much political cover to sit on its hands.

T. Rowe Price's Blerina Uruci flagged that energy prices were likely to accelerate further in the June quarter — and that the RBA's playbook here is to front-load tightening before second-round effects get baked into inflation expectations. Markets had priced today's move at around 75 per cent probability, with a further 2.5 hikes pencilled in before year end.

The road ahead...

The RBA's statement carried the confident-but-careful tone of a central bank that knows it's not done yet. Monetary policy, they said, is "well placed to respond to developments" — which is central bank speak for we've still got ammo and we're not afraid to use it.

The real question now isn't whether the RBA was right to hike — the data made that case pretty cleanly. It's whether the combination of three consecutive hikes, elevated energy costs and global uncertainty starts to bite harder than expected. Households carrying variable-rate mortgages will be doing the maths. Businesses watching input costs rise from both ends — wages and energy — will be doing the same.

The RBA has made clear it will "do what it considers necessary." Whether that means one more hike or several will depend on how quickly inflation responds. And on what happens next in the Middle East.

More to come.

Rick Maggi, Financial Advisor (Perth), Westmount Financial